We've seen a dramatic pullback in precious metals recently as I expected.
Gold prices have corrected 22%, as of today, since peaking at $725/oz. on May 9th -- but remain up 9% ytd!

Today the CPI came out with overall rate at .4% with core rate at .3%.
Clearly there is inflation. The markets (stocks, commodities, except bonds) seem more worried about the cure than the disease. They fear Bernanke raising rates to fight inflation and killing the markets
along the way.

But stop a moment and think about it. What have 16 rate hikes
done already? Apparently nothing, given today's CPI numbers. Rates have gone
from 1.1% to 3.5% and we still have a 5.6% price increase on a wholesale level
and a little less on consumer prices. Pass thrus are yet to come.

Gold bugs love run-ups, but love price-breaks even more. Average people buy
high and sell low, but not gold bugs and true believers in the fundamentals.
Bottom line: NOTHING HAS CHANGED -- Inflation is here and the world knows it, which is bullish for gold long-term.

I can't imagine that another rate hike will kill the inflation cancer. Not one,
two or even three. All it will do is kill housing, stocks and other markets on a
short-term basis.

The Dow closed Tuesday down on the year. I think what we're seeing is a worldwide
liquidity problem. Liquidity is not available money. Liquidity is the ability
of an item to be sold with very little affect on price. If a stock is liquid
it can take a large sale without much downside movement.

Right now the world is so tense that any selling sends prices south. This
could and will change overnight once a market of "choice" emerges. I believe
that market of choice will be tangible assets, given it is the only bull market
that is real, that you can hold it in your hand -- without a financial statement,
which may be cooked, to establish value.

Despite a 20%+ correction, gold remains up 9% ytd. What other market could sustain such a steep fall and remain up on the year? Even more impressive is the investment coin market's stability during
this bullion market volatility. For example, U.S Gold Commemorative prices moved
up this week despite the decline of gold, indicating great upside potential in
the future.

While many pundits like myself see this correction as nothing more than a healthy breather in a strong bull market, others are calling it the end of the bull market and the beginning of a bear market.

"The precious-metals bull market is officially over," Dale Doelling, chief market tech at Trends In Commodities
told CBSMW today. One CNBC floor reporter said "gold is now in a bear market because it has fallen 20% since May 9th."

"This downside is paltry compared to the upside potential for gold. Gold could reach a price many times higher than it’s at today,
regardless of whether inflation or deflation becomes the problem...",
wrote Stephen Leeb on Monday.

Larry Kudlow said on CNBC this is the end, while James Turk
told CBS Marketwatch
he still sees $850 by years end. Mr. Turk further told
Barrons on May 29th that gold could go as high as $8,000/oz in this bull cycle.

So which is it -- a strong bull market correction... or beginning of a bear market?

Bull and bears will never agree, but from my
perspective I'm glad to see the 'hot money' leave the metals
and commodity markets for now, to allow real, long-term
investors an opportunity to take a position at more reasonable
prices this summer before the next major leg up in this bull market.
The fact is no one knows, but here are a few facts we do know for sure...

1) The U.S. dollar is still off 40% over the last 4 years, even after 16 consecutive
interest rate hikes -- and shows no signs of reversal without severe rate
increases very soon. If the Fed was to raise rates to an inflation-fighting level
it would plunge America (and the world) into a deep recession. Major players like
Warren Buffet are still shorting the dollar, knowing full well it's value over time
must drop further. The M-3 money supply report is no longer offered. At last look
it was growing at 8% per year.

2) Inflation expectations are real. Most countries, fund managers and sophisticated
investors are taking defensive positions against rampant inflation. Core rates have
been consistently going up. As they go higher, bonds will take a beating.

3) The U.S. Government needs to borrow huge amounts of money to finance the deficits.
With a $9 trillion debt ceiling the world, which historically is willing to lend us
money, is becoming very nervous about our ability to pay them back. Many foreign
holders of dollars have been prevented from using those dollars to buy
real companies or assets (such and CNOOC buying Unocal oil company or Dubai Port Worlds
buying ports in U.S.) More and more restrictions are being put in place in the name of
homeland security. I believe it's to keep the holders of dollars doing just that -
holding dollars -- instead of real assets like gold.

There should be no doubt in anyone's mind that the price of all real assets
will increase on a long-term basis, given what's happening in paper currencies around the world. I haven't even
mentioned issues like Iran, the war on terror, oil above $65 bbl., etc.

Any single event in the world
could easily reverse the recent cooling of the metals markets. Therefore, I believe it's incumbent
on us to stay the course with our strategy of acquiring gold, and buying the dips. Between 5-15% of a portfolio should have an insurance position in gold. Gold should remain the
bedrock of a portfolio regardless of price. Recent increases from $265/oz. in 2001 to
$565 today -- a jump of 213% -- are great, they're just the beginning of a long-term
bull market that should continue for many years to come.

DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.